Is Securities Premium CANCLED or TRANSFERED under merger under Pooling of interests methord

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Prajwal Kannan (Querist)
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20 June 2023 Two companies A & B are merged into C. Where B is a subsidiary of A, and all three companies have common directors. Under the pooling of interest method of merger accounting, Is canceling both Share capital and Securities Premium correct or do we need need to cancel only share capital?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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09 July 2024 In a merger scenario involving companies A, B, and C (where B is a subsidiary of A), and considering the pooling of interest method, the treatment of share capital and securities premium would typically follow these principles:

1. **Share Capital:** When companies merge under the pooling of interest method, the share capital of the merging companies is combined into the share capital of the surviving entity (C, in this case). This means that the share capital of A and B would be combined into the share capital of C.

2. **Securities Premium:** Securities premium represents the amount received above the face value of shares when they are issued. In a merger under pooling of interest, securities premium is typically not canceled or adjusted. It remains as part of the reserves or accumulated profits of the surviving entity (C).

Considering your query:
- **Share Capital:** Yes, under the pooling of interest method, the share capital of both A and B would be canceled and combined into the share capital of C. This is because the pooling of interest method assumes a historical cost approach where the financial statements of A and B are combined as if they have always been together.

- **Securities Premium:** Securities premium is generally not canceled. It remains on the books of the surviving entity (C) as part of its reserves or accumulated profits. This premium reflects the excess amount received over the face value of shares issued by A and B.

Given that A and B are merging into C, and assuming C is the surviving entity:
- A's share capital and B's share capital would be canceled and combined into C's share capital.
- A's securities premium and B's securities premium would not be canceled; they would remain as part of C's accumulated reserves or profits.

This approach ensures that the financial statements of the merged entity (C) reflect a combined history of A and B without adjusting securities premium, which represents historical financial values rather than the exchange consideration for the merger.

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